Fodare Pty Ltd v Shearn

[2009] NSWSC 1125

CITATION:	Fodare Pty Ltd v Shearn [2009] NSWSC 1125
HEARING DATE(S):	15/10/09
JUDGMENT DATE :	15 October 2009
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Application for summary disposal refused. Orders for pleadings.
CATCHWORDS:	PROCEDURE - application by defendants for summary disposal - no basis for such order shown - observations on correct approach to originating process under Supreme Court (Corporations) Rules 1999
LEGISLATION CITED:	Corporations Act 2001 (Cth) Supreme Court (Corporations) Rules 1999, rule 2.2(1) Uniform Civil Procedure Rules, 2005, rules 2.21, 13.4
PARTIES:	Fodare Pty Limited - Plaintiff Doris Emily Elizabeth Shearn - First Defendant Kathleen Anne Hirtzell - Second Defendant
FILE NUMBER(S):	SC 3048/09
COUNSEL:	Mr J T Johnson - Plaintiff Mr M J Cohen - First and Second Defendants
SOLICITORS:	Garland Hawthorn Brahe - Plaintiff Dignan & Hanrahan - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

THURSDAY 15 OCTOBER 2009

3048/09 FODARE PTY LIMITED v DORIS EMILY SHEARN & ANOR

JUDGMENT

1 I have before me the defendants’ interlocutory process seeking an order under rule 13.4 of the Uniform Civil Procedure Rules 2005, that the originating process be dismissed. That rule deals, of course, with cases where it appears to the court that the proceedings are frivolous or vexatious or disclose no reasonable cause of action or are an abuse of the process of the court.

2 The proceedings have been commenced in a way that is to an extent irregular. Under rule 2.2(1) of the Supreme Court (Corporations) Rules 1999, an application under the Corporations Act 2001 (Cth) is to be commenced by the filing of an originating process or an interlocutory process. Para 31 of Practice Note SC Eq 4 says:

"An originating or interlocutory process should not be amended so as to be converted into a pleading.”

3 Paragraph 31 makes it clear that if it is thought that there should be pleadings, then there should be a specific application and order in that respect.

4 The plaintiff has taken precisely the course ruled out by para 31 by annexing a form of statement of claim to its originating process and causing the originating process to commence:

"On the grounds stated in the accompanying affidavit and statement of claim, the plaintiffs [sic] claim declarations and orders that".

5 I would add that the annexed form of statement of claim is, in any event, not properly verified.

6 The matters to which I have just referred are, of course, matters that may be and should be rectified by appropriate orders and directions if the plaintiff's application for dismissal under rule 13.4 is not successful. I mention the matters at this stage, however, because they have played some part in the submissions concerning the rule 13.4 application.

7 That application has been approached on the footing that the form of statement of claim annexed to the originating process, irregular as it is, should be taken to describe and delineate the case the plaintiff seeks to pursue. It is by reference to the content of that form of statement of claim that the defendants' submissions going to the matters relevant under rule 13.4 have been made.

8 The main allegation of substance in that form of statement of claim is that the first defendant, Ms Shearn, a director of the plaintiff Fodare, took into a bank account of her own a sum of about $383,000 out of the proceeds of the sale of Fodare's property at Menangle; also, that $260,000 or thereabouts was paid out of that $383,000 to the second defendant, Ms Hirtzell, who used it to pay a debt owed to a bank by herself and her husband.

9 If those allegations can in due course be substantiated, there is a distinct prospect that Ms Shearn will be found to have been in breach of duties owed by her to Fodare as a director of that company and that Ms Hirtzell may be found to have been knowingly concerned in the breach by Ms Shearn and in knowing recipient of moneys held by Ms Shearn for Fodare. I do not lose sight of the fact that it is alleged that Fodare was a trustee, and that the moneys concerned were part of the trust property; but that really makes no difference to the assessment of the conduct of the director and the alleged knowing recipient.

10 The defendants' position is that the proceedings were, in reality, commenced by Mr Dennis, a solicitor, in the name of Fodare as plaintiff and effectively without the plaintiff's liquidator, Mr Clout, having engaged in any relevant assessment and decision making. I interpolate that the proceedings were commenced after the commencement of Fodare’s winding up. According to the defendants, Fodare cannot be seen to be the real initiator of the proceedings. That is said to bring the matter within one or more of the categories dealt with in rule 13.4.

11 I do not consider that contention to be supportable. I refer in particular to paras 14 and 15(f) of the affidavit of 10 August 2009 of Mr Clout, Fodare’s liquidator, and also the affidavit of 14 August 2009 of Mr Rowley, a chartered accountant who has been assisting Mr Clout. Mr Rowley's affidavit annexes transcripts of liquidator’s examinations of persons connected with Fodare. Mr Cohen took me to passages in these transcripts with a view to showing absence of a basis for the causes of action foreshadowed by form of a statement of claim. My view is that those passages, to the extent that they are indicative at all, tend to lend support to the proposition that the causes of action are viable.

12 I am not satisfied that the defendants have shown that the proceedings are objectionable in any of the ways referred to in rule 13.4. In particular, I am not satisfied that it has been shown that the proceedings have been commenced otherwise than according to the considered decision making of the liquidator of the plaintiff, he being the person in whom the relevant decision making function is vested.

13 The application for dismissal under rule 13.4 of the Uniform Civil Procedure Rules will therefore, be dismissed. To deal with the procedural matters to which I have referred earlier, there will be an order that so much of the originating process as consists of the annexed statement of claim, together with the words "and statement of claim" in the introductory paragraph of the originating process, be struck out, plus orders that the matter proceed on pleadings and that the plaintiff file and serve a verified statement of claim within 7 days.

14 The order I make at this stage with respect to the interlocutory process of the defendants filed on 13 July 2009 is that the application in prayer 1 be dismissed. I also make the other orders to which I have referred.

15 I shall now hear the defendants’ application for security for costs.

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